On Thursday 06 June 2024, representatives of ag-tech companies operating in Africa and Asia discussed their respective approaches to supporting the growth of micro and small enterprises (MSE) start-ups, and their role in changing the landscape for access to finance in the agriculture sector. The session was co-hosted by the Smallholder and Agri-SME Finance and Investment Network (SAFIN), the International Finance Corporation (IFC), and the SME Finance Forum.
The agricultural finance landscape has evolved rapidly in recent years with a growing number of ag-tech solutions. Digital platforms are creating an ecosystem that not only provides financial services, but also offers a suite of additional products crucial for the success of small-scale farmers such as access to inputs, markets and training. But two complex relationships must be managed in this space: combining on-the-ground efforts with digital technologies to ensure service quality while controlling costs, and engaging with local financial institutions to scale access to financial services for farmers. Experts from ISF Advisors, the International Finance Corporation (IFC), Apollo Agriculture (Kenya), Jiva (Indonesia), Lersha (Ethiopia), and SatSure (India) shared their perspectives.
Key insights from the roundtable discussion include:
Balancing high-tech and high-touch support
While technology is considered a powerful enabler, its usage is limited in agriculture. Field agents, local specialists who link farmers and MSEs to tech companies, are instrumental in fostering trust amongst them as they guide clients through their digital evolution, enhance their skills and increase their digital engagement. For Apollo, Jiva and Lersha, field agents play a vital role in supporting the gradual transition to a digitally-empowered agricultural community. Field agents also handle tasks like data collection and Know-Your-Customer (KYC), which can be challenging to perform only digitally, while safeguarding the quality of data. Moreover, they are key in consolidating demand from MSEs for financial and off-taking services. However, tech experts at the end agreed that it is difficult to retain field agents due to agriculture’s seasonal nature. To address this, some providers can explore incentives like skills development programs that offer career progression opportunities.
Ag-techs as competitors and allies
In the burgeoning ag-tech landscape, overlapping services shouldn’t be seen as competition but as an expansive market, ripe for collective growth. The synergy between different ag-tech solutions, such as the potential for Apollo’s field agents to leverage SatSure’s satellite data, can enhance service quality and suitability for client MSEs and farmers. Given the high cost of technology development, ag-techs often face distinct choices in the nature and breadth of new services they decide to develop, making collaboration a strategic move for scaling up. As the ecosystem continues to evolve, ag-techs are likely to invest in new technologies, gradually specializing in different niches, furthering innovation and specialization within the sector.
Working with Financial Institutions
Local financial institutions hesitate to fund agriculture due to higher risks and costs than other sectors. Ag-techs, especially in Africa, face limited funding options, relying on foreign investors or Development Finance Institutions (DFIs), which can shift financial burdens such as foreign exchange risks onto ag-tech clients. Meanwhile, the stringent requirements imposed by local commercial banks complicate access to local sources of finance. When it comes to financing farming activities directly, data on farmer production and repayment can alleviate the concerns of local banks. For this reason, SatSure has invested in understanding bank risk assessments, advocating for more comprehensive data collection and analysis to meet bank criteria. But for ag-techs like Lersha it can be prohibitively expensive to gather sufficient data to satisfy most banks’ assessment requirements. Instead, ag-techs tend to focus on other ways to incentivize bank engagement. For Lersha, success was found in strengthening the value chain with bundled services and contracts with agri-food off-takers. Similarly, Jiva works directly with farmers in the field to improve their production quality and scale their outputs to meet processor demand and standards.
